Dear Partners,
The year 2022 was a very formative one for me. I acquired the intellectual and emotional tools to finally become a more disciplined, long-term value investor.
I used to research prospects of physical growth in industries and followingly concluded what companies were good investments. Over the past two years, however, I’ve come to the realization that this kind of top-down thinking won’t get me very far. At the end of the day, I always pay for a company’s bottom line, not for an industry’s lofty visions.
Chasing Wall Street’s favorites in 2020: The Genome-Editing and „AI“ companies, I’ve come to the realization that unpopular and superficially “boring” companies are more likely to be a successful investment. The current market downturn and the high likelihood of a prolonged market sell-off in 2023 will expose me to wonderful businesses at a magnificient price. The market pendelum will swing too far into the opposite direction, of where it has been in recent years. Simply, no price seemed too high for stocks, because their future possibilities were „limitless“ – this has changed in 2022 and will “really“ play out in 2023.
The last decade has seen the emergence of many wonderful businesses. These businesses have it all: a wide moat, spectacularly high margins, and massive tailwinds for decades to come. Yet for all their popularity among the investment crowd, many have failed to understand the most basic principle: That the value of their investment is, and will always be, a function of the price they pay for it.
These “data” companies are indeed exciting and changing the way our world works. Everyone wants to be part of this revolution and exposed to the companies that seem to transform our world. While in the past I’ve tended to make the mistake of “being part of something”, this year I’ve learned that one shouldn’t be interested in “exciting” growth stocks when they’re most popular – but when things are going wrong. And what will very likely happen in 2023 is that this new generation of companies will experience what a recession feels like on their financial statement for the first time. Any price will be too high for these gamechanger-data-companies, as they are all headed for “extinction.”
An investor who has both, the affinity for technology, but also has the principles of value investing emobodied within him, will understand this unique bargain opportunity and is well equipped to become the next great investor of the century.
Tech is faster moving than anything the world has seen before. Staying humble about my forecasting power and strictly sticking to exceptional businesses, at the right price, will be key.
Greetings from Singapore,
Richard F. Schäli
